Wall Street Beat: Tech shares up as financials pour in

It's been another big week for quarterly financial reports, but this time it's not the IT sector that is getting credit for boosting confidence and raising market indexes including the tech-centric Nasdaq.

The U.S. Department of Commerce report Thursday that U.S. gross domestic product (GDP) rose by 3.2 percent in the third quarter overshadowed earnings announcements. The rebound ended a four-quarter losing streak for the economy and buoyed stock exchanges. The Nasdaq closed at 2097.55, up by 37.94 points, while the broad Dow Jones Industrial Average rose by 199.89 points to 9962.58.

IT and telecommunications companies including Sprint, Motorola, Verizon, Symantec and SAP reported earnings this week, for the most part stressing that even though revenue is in many cases still lower than last year, cost cuts have led to better-than-expected earnings and users seem to be in more of a buying mood than they were earlier this year.

Optimism from the tech sector is widely considered to be one of the main reasons that stock indexes have risen in the past few months. But recently the upward trend in share prices faltered as investors absorbed the wave of financial reports issued during the past few weeks. While tech companies have mostly beaten expectations, sales figures on the whole remain lower than last year.

Market prognosticators predict that the nearly 10 percent U.S. unemployment rate will not likely recede significantly for another year, casting doubt on sales expectations for the consumer market.

Motorola Thursday said it posted a third-quarter profit of US$12 million compared to a year-earlier loss of $397 million. But the results were based on deep cost cuts. Revenue plunged by 28 percent to $5.45 billion, largely due to falling sales of mobile devices.

The good news is that the company managed to restructure for profit even before the introduction of its new Android-based mobile phones, the Droid, which debuted Wednesday, and the Cliq.

"The introductions of our new products powered by Android are important milestones as we begin to address the mobilization of the Internet and the growing demand for modern smartphones," said Sanjay Jha, co-CEO of Motorola, in the company's earnings statement.

"Next year, we will continue to expand our smartphone portfolio and deliver improved financial results,” he said.

Company shares closed at $8.74 Thursday, up by $0.78 on the news.

New phones did not help Sprint Nextel, however. Despite adding the Android-based HTC Hero device to its lineup, the company continued to lose subscribers in the third quarter, it reported Thursday. The company's loss grew to $478 million from $326 million a year earlier, while revenue fell 9 percent to $8.04 billion.

"We are far from satisfied in that we have not returned to subscriber growth yet," said CEO Dan Hesse on the earnings conference call. In an up day on the markets for tech and other sectors, investors dumped Sprint shares, which fell by $0.15 to $3.09.

The quarter went better for Sprint competitor Verizon Communications, which

reported earnings Monday. Verizon's net income for the quarter was $2.9 billion, down from $3.2 billion in the third quarter of 2008, but revenue was $27.3 billion, up 10.2 percent. Unlike Sprint, Verizon added subscribers in the third quarter.

On the software front, SAP stayed cautious when it announced quarterly earnings Wednesday. While profit rose 12 percent to €435 million (US$650 million), revenue declined 9 percent to €2.51 billion.

"While we are seeing signs of stabilization in the general environment, the market remains difficult," said Werner Brandt, the company's chief financial officer, in its earnings release..

"Third quarter software and software-related service revenues came in lower than we expected mainly because of a particularly challenging environment in the emerging markets and Japan."

On its part, security software vendor Symantec said Wednesday that quarterly earnings rose to $150 million from $126 million a year earlier, though revenue declined 3 percent to $1.48 billion.

While the U.S. GDP news is a bright spot for the macroeconomy, stronger sales figures from tech companies are needed before anyone can say the sector is out of the woods.